Capital One Discover Merger Approved by Federal Reserve

Prime Highlights

Federal regulators cleared Capital One’s $35.3 billion acquisition of Discover Financial Services.
The combination, to be completed ahead of May 2025, will create the biggest U.S. issuer of credit cards and further consolidate Capital One’s grip on payment handling.

Key Facts

The Federal Reserve and OCC sanctioned the deal on the condition that Capital One enhance previous Discover compliance, a $100 million penalty.
Consumer groups protested against the merger, but regulators revealed the market remains competitive even amid consolidation.

Key Background

In a blockbuster decision, the Federal Reserve has approved the $35.3 billion all-stock buyout of Discover Financial Services by Capital One. The deal, first announced in February 2024, will make the largest U.S. credit-card issuer by volume of loans and give Capital One access to Discover’s proprietary card payment system—an asset held by just a handful of financial institutions.

Capital One wants to acquire end-to-end control of the payment process. Now, every big bank takes the payment networks of Visa and Mastercard for payments. With Discover acquisition, Capital One can get transactions done on Discover’s platform, along with a save of estimated fee and enhanced profit margin. This can also mean a better reward program and maximum efficiency in customer services.

The regulator’s approval was not controversial. The Federal Reserve and Office of the Comptroller of the Currency (OCC) examined the merger for potential negative impacts on competition, community access, and financial sector stability. Perhaps most-quoted among areas of concern was Discover’s history of conduct—specifically, its years-long merchant fees that were excessive. Capital One has taken a remediation route in the form of a $100 million penalty and payment to affected groups.

Consumer advocacy groups were worried about the impact on consumers, particularly subprime consumers. The consolidation was viewed by critics as reducing competition, increasing fees, and reducing options for financially strapped segments of society. But the Federal Reserve determined that having a couple of large issuers in place would still maintain sufficient consumer choice and competition.

The deal is expected to close on May 18, 2025. Regulation-wise, Capital One will be required to offer end-to-end post-merger compliance and risk management strategies. The deal is a part of a broader consolidation trend in financial services that predicts an era of fewer but larger companies in the United States credit and banking sector.